The Pre-Seed, Seed and Series A Accountancy Journey With James Lizars

by James Ker-Reid - April 28, 2020

We interviewed James Lizars of Thriveworks – Xero accountants for technology businesses, talking us through the finances and accountancy journey of Pre-Seed, Seed and Series A tech companies and startups.

So over to the interview from our Founder, James Ker-Reid, with the key questions and answers:

  • What are the journey points that a tech company goes through in regards to finances?

Certainly, Pre-seed, Seed, Series A and maybe beyond are the big general gateways, but another way of looking at it is company headcount. Each company has their own variations but pre-seed, 0-3 people perhaps, up to Series A, you might find a way to stretch to 20-40 people in that time, depends on your business model and how well you are selling at that stage and how you are doing with sales and cash as the variations can be quite big. Funding rounds are probably the most obvious journey points. Headcount is more a day to day thing. On a macro level, the funding round is the first layer and the second layer is headcount. How you are spending your money, therefore show what the size and the shape of the business is; most tech companies will be spending their money on people and marketing. 

  • If we were to pick those journey points, Pre-seed, Seed, Series A and maybe beyond, what happens in each journey of those l points with regards to the finances of a company?


You are buying on price, that feels really important to you. But you also need to be getting value. Keeping Companies House happy, keeping HMRC happy, making sure you’re not screwing up somewhere, make sure you understand VAT. Something nice to have would be projecting forwards and looking at commercial models and cash models and feeding that into the design of your business or product. That kind of thing can be very costly to buy in, and I’ve seen it be even more costly with a DIY approach which is often done badly. There are lots of helpful resources and lots of people happy to help if asked. Get that advice, it’s a stage where you can seek help and it can be freely given. The personnel and layout of the company at this point could look like; you have an external accountant, the finance function could be a piece of software (e.g. Xero or Quickbooks) where you are maintaining your records, preferably not excel and not your bank account, but making sure you have accounting software. Make sure you have an accountant who can see that and can talk to you about VAT, in particular. In reality, the first filing demands, VAT aside, come quite a way down the road, perhaps 12 months of post-incorporation, followed by 9 months before you need to file accounts, giving you a good period of time there.

Failure points of Pre-Seed companies

People who get it wrong usually at Seed level, get to the end of those 21 months and then seek an accountant to get it done immediately, or do it themselves. And the reason I say they get it wrong is that they have been open to risk a lot of that time and for a tech business, from day 1 you should have an R&D strategy. Tax credits are a really valuable source of cash for a tech company and you can see that by this huge industry that has formed in the last decade, seeking to win you a tax credit for a large cut of the proceeds. For a new tech business it’s a pretty simple exercise though.

You need to demonstrate there’s been a technological advance – i.e. developing your own platform – and all you might need is a one-pager that explains that no one else out there is doing what you’re offering and it’s a technological advance and it was hard. And then you need a spreadsheet explaining what you spent to get there. As long as you are gathering information from day 1, and splitting out where you’re spending R&D, or on marketing, or sales etc. The mistake that has been made early on when you buy on price, is that the opportunity cost is pretty dramatic.

By not having an accountant who understands how to get you the R&D maximised, or just deciding to fall back on an R&D specialist firm to handle your claims, then you’re losing far more money than you would have saved by choosing someone who works in the tech industry and helps you navigate this exercise. The whole R&D industry exists based on fear of getting money from HMRC – however, it’s a tax credit, it’s an entitlement, you’re going to use it to pay someone else! The government loves giving it away as it just goes straight back into the economy. It’s one of those things that we really push.

The other big mistake is VAT – VAT is by far the worst tax. The mistakes pre-seed companies make with VAT – if you’re B2C, you want to delay that registration as long as possible. If you’re B2B, the chances are that your customer isn’t going to care if you’re VAT registered or not because they recover the VAT on their own return. Often, if you’re not VAT registered and trading B2B, people can think it’s slightly odd and you must be a small company. If you’re pre-sales and spending money and spending money with VAT registered supplies and you’re VAT registered, you can get that money back. There’s a good argument to get your accountant on board early and register for VAT ASAP as what you will get back on VAT alone could pay for your accountant, several times over. 


  • Moving on to Seed tech companies, perhaps who have raised £300,000 – £2 Million. What does the finance function look like?

Now you’re spending money. You’ve raised the investment based on ‘this is what we’re doing to do with the money’. And you’re starting to spend -usually recruiting heavily and in truth, not an awful lot changes in the base finance function happen; you still have VAT returns, still have the annual stuff, still got bookkeeping etc. Now you’re just adding people into what you’ve already set up. It starts to really increase, the number of things going through, the number of transactions, therefore the likelihood of errors and mistakes also increases. What you need is to ensure there’s robustness, but pair that with efficiency as you still don’t want to be dealing personally with this. 

Robustness is ensuring there’s not a single point of failure, it’s not the founder picking up bank payments at 3am when they’ve just finished work. Whoever is doing the bookkeeping is having their work reviewed, as everyone does make mistakes, but it takes both the accountant way of reviewing stuff and the knowledge and input of the business to say it’s wrong. You don’t want the Founder having to do this stuff, the Founder wants to be able to review the information they receive from the accountant, rather than having to find or collate the information themselves. Robustness is ensuring no failure by empowering the bookkeeper and accountant to make vital decisions, knowing your business and set up. 

Inefficiency costs money, but it’s when inefficiency costs the Founder time and frustration that’s where it’s really expensive. If you don’t have an efficient process for gathering supplier invoices and getting them paid, for example, and not paying these invoices on time, it’ll be the founder and the team that’ll be receiving the stress of supplier follow-ups. If you want good and quick access to information, you have to sort out the inputs – for example, if you have 5 personal credit cards that you’re putting expenses through because you want the points and benefits, then you’re creating a whole load of inefficiencies that block the production of management information. It’s about getting the systems and processes right so that you can access quick accurate information. Getting people paid on time, getting yourself paid on time and knowing what the risks are. The Founder is still quite involved in the finances of a Seed company – they are aware of invoices and bills etc. 

At this stage of companies, I also see a lot of time being sunk into excel – modelling, monitoring, planning, editing and so much of it is not good because often the output a week later is totally obsolete. The only value in this process is the thinking time that is put into creating the spreadsheet – the thinking time is valuable. 

  • To dive deeper into the CEO modelling and this thinking time…why are CEOs putting into that time into excel?

They are probably looking ahead to their next round, they probably feel like they should be giving data to their current investors, and feel this investor burden, but it’s not really doing much at this stage. They’re still really early on their product-market fit and they are still exploring that. So measuring your CAC? Lifetime value!? It’s still early days for that. Things that are important are cash runway, burn rate, the pipeline for sales. It’s not even measuring sales really. It’s often measuring how your pipeline is doing right now versus the time period before. If you’re tracking your pipeline then you’ll be measuring your sales cycle and your conversion rate which is what’s important – lead indicators and managing those. You don’t really need to be investing time or energy into forecast models, unless it’s driving your thinking on the commercial model itself. 

  • Let’s round it up with Series A. What does the finance function look like for Series A?

Potentially you’re going to hire a Finance Director – when is the best time? Only when you think you are getting the right person for the duration. You can get a finance director for £90K but they aren’t going to carry you through international expansion. So it’s when you are willing to spend perhaps £150K and put that into your resource plan – even then you’ll end up with someone who is using their finance skill set maybe 20% of the time. And the rest of the time they are just another senior leader, but how valuable is that? Another leader who’s in the office 5 days a week and who can take some business management off the Founder, that’s where you start to make the argument to hire a Finance Director. Numbers alone perhaps don’t quite stack up for the senior hire. 

  • You mention hiring a Finance Director, when you look at the decision criteria of the Founder who has just raised to Series A, what are the criteria they should go through in order to decide what type of finance person? Manager?  Director? 

Someone with a Financial Controller background is one who is experienced at running a finance function and a team and they know the ins and outs of keeping the accountancy up to date, working with the external accountant, very much the stuff that gets you to the month-end P&L and balance sheet and keeping the cash flow healthy. A Management Accountant is much more analytical about everything going on in the business. Looking at projecting all the inputs/outputs, finding insights into what’s working and what’s not etc. Much more commercially focused. The Finance Director will have both these skill sets and also bring a strategic approach to the whole business.

  • What are the mistakes or challenges that Founders have with their finances at Series A? What behaviours do you see?

That’s quite broad, as it’s now starting to look like any established business at that point in time. It comes down to dynamics, wrong processes and maybe the finance function not being integrated enough into the company. To counter that, there may be more transparency and sharing of numbers and finance really comes into the fold – and this can be a great thing for aligning people behind the company’s mission. That’s where ultimately having a finance manager or director in-house really helps you because when someone says ‘I think we should increase the prices’ someone can actually work out what the impact of that would be, over perhaps a 12 months period, and therefore the sales and marketing team could know what the might mean for them and their budgets etc. Post-Series-A is when you start to bring people in-house because the osmosis effect is really valuable. The osmosis effect of just hearing conversations, it goes into people’s minds and you’re more aware of what’s going on in the business every day, you can learn from it and be more relevant in what you feed back to others. 

  • In terms of your company, would you help recruit the right people to take it in-house?

I certainly would help define the role and with some companies, we’ll carry on being the outsourced finance function because maybe they have a distributed workforce, that would still make sense. I wouldn’t necessarily decide to do it at that point in time. We’ve got series A clients, we’ve got a distributed workforce in general, but we still have an office, there is an HQ. If we didn’t have a solid outsource arrangement already with a client that moves beyond Series A, I probably would be recommending they hire in-house. Ideally, someone does need to be there full time, as day to day operating stuff should be in-house, but you might outsource specialist financial analysis, end of year etc. 

  • An accountant normally completes a piece of work, a return for example, and then that’s it. I feel It’s almost an instruction, task-based industry, rather than a proactive and predictive industry. Is that right?

Yes, a lot of accountants do this. I set up Thrive to be a full-service finance partner. You’d work with a Finance Director who you can sit down with for the outset and who can say ‘this is your journey, this is what the next 5-10 years hold for you, and you’ll go through these gateways, to get to these points where you’ll start to enjoy your work’’.

The right choice is the accountant who can talk to you about that whole journey and how they can add value at every step of the way. Rather than you having to ask them to do certain tasks, they are telling you the things you need and will get them done. Year 1 you might find it to be a relatively large cost, but by year 5 it’ll be a tiny fraction of it. The right accounting partner at that stage is delivering so much value, based on a long and detailed understanding of the business, from the ground up.

What is happening in an awful lot of tech businesses is that you have this grudge purchase through the accounting line forever. They may hire someone as an in-house admin who can do a bit of bookkeeping etc, but it’s not joined up, it’s not strategically focused. The bit that’s invisible throughout this whole journey is that the founder does not know that they are doing the job of a Finance Director – taking all those inputs and interpreting them into an investor deck for some performance tracking. They are plugging the gap of this skill set that they didn’t have in their previous career, they have just had to wrestle it together through necessity. If you go external, it’s expensive, if you ask a business coach, they can only point you in the right direction, so you find you have to start fixing mistakes with your ‘not really a bookkeeper’ and equally your bookkeeper is not your accountant anyway. 

  • That’s interesting – you say the bookkeeper is not an accountant, but also the accountant is often not an adept bookkeeper – is this where fragmentation can happen?

Yes, this happens all the time and is a big source of the frustration that Founders experience. You’re lacking in the clarity that you feel you need to make decisions with confidence. The bad version is that you are just not sleeping as you are stressed about the finances because you just don’t know what’s going on. You can see your bank balance, you can see what you’re owed and that’s about it. You just don’t know how you’re actually doing as a business. And opportunities are being missed in a big way.

  • Any final recommendations you’d give to, Pre-seed, Seed and Series A tech companies?

The main takeout for me, throughout that whole founder’s journey, is a version of compromise, the ideal solution of hiring a full-time finance team isn’t available to you and you wouldn’t choose it because it’s very expensive (> £250k), so it’s about choosing the right compromise. So often this is done unknowingly and is a fire fighting exercise in most startups in that range. Just solving problems as they arise rather than looking ahead at what the needs are likely to be.  Think through the options and choices before making them. And know that there are services out there like ours, where you can have a full-service finance team adding value from day 1.

Thanks very much for today to  James Lizars of Thriveworks. 

Over and out from the team at Sales for Startups. We’ll be interviewing other Tech leaders, Tech Founders and industry-leading partners to see why we are missing the mark when it comes to growing B2B tech companies.

If you’d like to be interviewed please comment below or feel free to connect with me on LinkedIn or submit a request on our website.

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